FERMA hails role of captives in ESG goals

Captives can play a key role in facilitating the environmental, social and governance (ESG) objectives of organisations, according to a new report from FERMA. While not their primary role, the study finds that captives can be employed in multiple different ways to embed ESG initiatives into insurance and risk financing strategies.

The report, ESG - Toolbox for Captives, developed by FERMA’s Captive Committee, provides practical advice on how captives can help embed ESG commitments throughout everyday insurance and risk management activities, and provides clear guidance on using the risk transfer mechanism to help support sustainability goals.

FERMA stated that while the ESG toolbox is not intended to be “a rulebook”, it does serve as a source of ideas designed to stimulate discussion and inspire action around the use of captives in the ESG context.

ESG principles not only help protect an organisation’s reputation, but safeguard resilience and competitiveness while supporting long-term value creation. While acknowledging that the primary function of a captive is not to drive the ESG strategy, the report highlights multiple ways in which they can be used to catalyse critical initiatives by helping embed ESG objectives into everyday operations.

Environmental

• Captives can be used to embed environmental KPIs into underwriting processes to help strengthen risk analysis by integrating climate, resource and pollution exposures.

• Captives can directly support environmental initiatives through their own investment strategy or through specific funding mechanism.

• Captives can be used to provide insurance for transition-related risk where coverage is limited in the standard insurance market.

Social

• Captives can play a core role in supporting social initiatives such as expanding and innovating employee benefits coverage.

• Captives can be used to embed social KPIs into underwriting processes to incentivise best practices by offering differentiated terms and conditions based on social performance.

• Captives can directly support specific social initiatives through their own investment strategies.

Governance

• Captives serve as an indicator of sounds governance as it is a structured legal entity for financing losses.

• Captives demonstrate a proactive risk management and financing strategy with clear oversight.

• Captives can help embed structured processes, incentivise better practices, and harness technology, serving to enhance overall risk management activities.

Laurent Nihoul, chairman of the Captive Committee, said: “The ESG toolbox emphasises flexibility over rigid standards, aiming to promote greater dialogue and encourage creative thinking around captives and ESG strategies, while helping captive owners design and implement their own solutions. By reimagining routine (re)insurance and risk management activities as opportunities for making an impact on ESG initiatives, captives can turn risk financing into a strong driver of sustainability.”

Philippe Cotelle, president of FERMA, added: “FERMA is committed to sharing knowledge and promoting innovation and through this report we want to explore how captives can play a strategic role in supporting ESG transformation. By embedding ESG into insurance and risk financing activities, captives can translate sustainability goals into practical action, strengthen their parent organisations’ ESG commitments, while driving long-term value and fostering responsible growth.”

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